Stock Market Analysis

Thursday, August 28, 2008

Investors STILL Staying Low...

I must admit I was wrong...

I thought investors are waiting for a favorable GDP number (which we got today) before jumping into the bandwagon, however, trading volume remains dismal today (although a little higher than yesterday) in the NYSE and those few sellers managed to bring prices way up for those few enthusiastic, excited buyers in the market. These additional buyers were probably short term bond traders as short term bond yields rose slightly today (see bond yield curve). This made today's GDP-rally of over 200 points on the Dow very unreliable. In fact, options traders were also not too excited as put call ratio remained stagnant (see Put Call Ratio). Are investors skeptical of the long weekend ahead? One thing's for sure, significant and sustained drop in trading volume usually signal the end of one trend... it does seem like the market is cocked for one big trend change soon. Seriously, the economic front still look mixed but showing signs of a pick up. For now, the Dow continues to be in a short term neutral trend.

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Wednesday, August 27, 2008

More & More & More Investors Stay Low...

Yes, the NYSE marked yet another new 2008 trading volume low today even though Durable goods orders rose 1.3%. Those few traders in the market who bought into this news caused significant gains across the board due to the low trading interest. It is obvious that investors are really scared of how the masses would react to tomorrow's GDP numbers (see economic calendar) and decided to stay low. In fact, today's gain of nearly 90 points in the Dow did nothing to change the short term neutral trend that it is now in.

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Tuesday, August 26, 2008

More & More Investors Stay Low...

Trading volume in the NYSE made yet another new low today as more investors stay on the sidelines. Oil was up a little on supply concern but nothing that makes any significant change. On the bright side, consumer confidence number today took an unexpected jump upwards and new home sales are up over 2%, suggesting that consumers may be back in the market for some good deals. The US dollar also continued to strengthen. However, these news failed to generate any kind of excitement as it becomes clear that investors are worried about how this Thursday's GDP number may turn out. On the technical front, a small candle day like today following a significant down day is totally expected and does not suggest anything at all. The short term trend continues to be neutral.

Monday, August 25, 2008

More Investors Stay Low...

What do you get when you combine the lightest trading volume of the year (based on the NYSE) with a little bit of pessimism? Yes, a huge drop. That was exactly what happened in the stock market today. The little bit of pessimism was contributed merely by the continued "data weakness" in the existing home sales market. Why does a light trading volume make big falls? Because sellers have to keep lowering prices in order to attract the very few buyers if they really must sell. Simple logic. Perhaps investors decided to stay low before the Consumer Confidence numbers tomorrow (see economic calendar)? Maybe. But whatever it is, all these culminates into a single word "Uncertainty". This uncertainty was also reflected in the sudden sharp fall in bond yields as traders rush for safe haven once again. The Dow echoed this uncertainty as it transforms its short term bull trend into a short term neutral trend. Such neutral trends have equal potential to break out upsides and downsides. However, occuring within the framework of a primary bear trend makes it a lot more inclined to downwards.

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Sunday, August 24, 2008

My Birthday Today!

Yes, its my birthday today, so, just a quick one liner: It is going to be a heavy and volatile week this week with more housing data, Fed speech and GDP (see economic calendar). The Dow has been persistent in its almost horizontal trading range the past month with still some room to upside.

Thursday, August 21, 2008

Oil Completes Turn-around!

Yes, It is an irrefutable fact that oil has completely broken its intermediate bear trend and have completed a turn around amidst speculation that OPEC could decide to keep production steady as oil price has corrected without any production cut. Surprisingly, the Dow held up against the turned around oil price and a huge bunch of other bad economic news including lousier leading indicators pointing to a flat economy going forward. Even though the Dow held up, closing up a mere 12.78 points, it did so on extremely light volume, suggesting wide spread uncertainty as investors sit on the sidelines. Therefore, on the fundamental front, there seemed little reason for the market to go into a rally as investors continue to run into safe haven investments such as gold. In fact, gold price staged the biggest single day rally in a long long time. On the technical front, the Dow continues to crawl along the bottom of its short term bull trend, displaying some signs of weakness.

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Wednesday, August 20, 2008

Oil Gains for 2 Straight Days...

Crude oil price gained for a second straight day today, the first 2 days gain since early July. This 2 days gain is an extremely significant one as it occurred right at its support level, completing a rounded bottom formation. A rounded bottom formation is a pattern where the price chart forms a round shaped turn around. Such a formation is especially significant near support levels. Does this mean that crude oil price is going to turn around into a bull trend? It's still too early to tell but today's gain despite rising oil inventory doesn't make it a very credible move. Regardlessly, moving up and down within a $100 to $120 range seemed reasonable enough. There is also a significant flight to quality as bond yields dropped across the board once again. For now, today's gain of 69 points kept the short term bull trend intact on extremely weak volume. Volatility is still the name of the game.

Tuesday, August 19, 2008

Devils Come Back...

US dollar dropped the most in more than a month, gold surged the most in more than a month, oil rebounded off a significant support level, PPI surged by an unexpected amount, housing starts disappoints with sharp decline... all in one day. The devils all came back in one day like the Legion. As a result, the Dow dropped 130.84 points today for a second consecutive day. Tomorrow's crude oil inventories would certainly be an important one for crude oil price as a lower number would certainly give oil the catalyst it needs to follow up on its gain of today. However, such a sudden and coordinated move from equities back into commodities really does make it sound a little fishy.

The short term bull trend remains intact for the Dow... just barely. With volatility (see VXO) still this high in the market, it is certainly not unusual for the Dow to make high frequency, high amplitude parabolic move in any single direction. However, the Dow is now at the bottom of its short term bullish channel. If it fails to rebound tomorrow, the short term bull trend will be broken and the primary bear trend would continue.

One quick note here: technical analysis is not perfect! If there is a perfect method of analysis in this world, those big investment banks would not struggle with billions of losses this past year (yes, why invest in subprime loans when your analysts can give you 100% accurate prediction and analysis on the stock market, right??). In fact, if there is a perfect method of analysis in this world, its effectiveness would immediately be eradicated as investors take opposite sides to arbitrage such a move. In fact, if you think the analysts in those big investment banks are so powerful and can make 100% analysis, why in the world are they still working for those banks? You make money from the stock market because someone else somewhere made a loss. Only when investors continuously take boths sides of a trade does the stock market exist! Which means that the possibility of loss ALWAYS exist in the stock market no matter what method of analysis you use and it is this possibility of loss or "RISK" that you are rewarded for participating in the stock market! All I do here is express my opinion on the market using the simplest language I can master. I do much more complex technical and fundamental analysis but they merely support the opinions that I make here and being a free blog acting as my diary on the stock market, I do not see the need for being that comprehensive. I hereby ask that those of you who do not find my blog of your liking to STOP COMING TO MY BLOG. Those of you who finds my opinions on the stock market useful, I will always do my best to provide you with the best guidance possible.

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Monday, August 18, 2008

Profit Taking In Financials

Financials led the way down today as some investors took profit, resulting in the Dow losing 180.51 points. The good news is, the sell off has fairly light volume and is very concentrated in the financial sector, which means that it is no indication of broadbased pessimism in the market. Indeed, the drop today did nothing to change the strong short term bull trend and as we have seen so many times recently, one day drops usually pave the way for an explosive breakout. Will it happen this time round? Chances are good but, being the stock market, one should never completely erase the possiblity of a breakdown at such critical junctures. Tomorrow's Housing Starts and PPI (see economic calendar) would be the focus as investors look for evidences of a recovering housing sector and indications that future CPI is going to ease off. Indeed, the past few months have seen a huge rush to buying properties in the USA from Middle Eastern and Chinese investors (particularly from Shanghai). Such recognition of value is the catalyst needed to end any kind of capital crisis.

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Sunday, August 17, 2008

Looking Further Ahead...

The Dow had hell of a month so far with a lot of volatility wrapped up in a nice dose of optimism and bullishness leading to the short term bull trend that we have experienced so far. However, those of you who have been following what I say very closely recently would notice that I have been using the term "Short Term Bull Trend" instead of an outright bull trend... why is that so? This is where we need to look further ahead for the answer. Looking at the Weekly chart for the Dow, we can clearly see that this "Short term bull trend" is actually a short term relief rally within the framework of a primary bear trend! Yes, this primary bear trend started way back in Oct 2007. Every relief rally within this framework has found resistance at the weekly 30MA (the white line in the picture below). This means that we should see a resistance for this short term bull trend at about 12200, which is still quite a lot of gain away. :) Whether or not the Dow could breakout into a real primary bull trend is a question to be answered later as the situation unfolds. For now, the short term bull trend seems strong enough to move further upwards as short term bond yields rise reflecting short term optimism.

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Thursday, August 14, 2008

Short Term Bull Trend Holds...

The Dow held its short term bull trend today as it gained 82.97 points amidst expectations of better CPI numbers next month and a slight retreat in oil. Yes, even though the poorer than expected CPI number resulted in the market opening downwards, optimism quickly returned to the market as investors buy into better CPI expectations for next month with the persistent drop in the price of crude oil. In fact, the US economy does look like it is recovering with the US dollar also gaining considerable strength lately. In fact, the US dollar staged the biggest recovery against the Euro this past month than it has ever did! This ended the forex "holy grail" of shorting the US dollar. The gain in US dollar would also help curb crude oil price. All these helped make the US an attractive investment once again. On the technical front, the Dow continue to rise along its short term bull trend and if the trend holds, we should see it make a new monthly high by next week. Short term resistance for now is around the 11750 area.

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Wednesday, August 13, 2008

Cautiousness Before The CPI Numbers...

The Dow closed down by 109 points today as cautiousness builds up prior to tomorrow's CPI numbers. Crude oil price also rebounded slightly in a totally non-threatening manner. In fact, crude oil price is long overdue a slight relief rally. For now, the Dow continues to be in a strong short term up trend despite the 2 days drop.

Monday, August 11, 2008

Optimism Continues To Build Up...

The Dow closed slightly upwards by 48 points today, retreating from its intraday high. Indeed, it is nothing strange to see a few sideways days like this one after every strong one day surge. This is further supported by the fact that investors are likely to remain cautious before the CPI numbers this Thursday. However, I do see optimism continuing to build up in the form of rising bond yield curve (see bond yield curve) and dropping total equities put call ratio (see Put Call Ratio). The broader market also displayed healthy internals with the only exception being the Basic Materials sector, which have been extremely volatile lately.

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Sunday, August 10, 2008

Dow Breaks Out!

The Dow reverses course last Friday in a stunning breakout, totally negating the second evening star signal. The only thing lacking is volume but such volume is signature of every Friday market. Which agian means that we need a follow up this week to confirm the breakout. In my experience so far, when 2 consecutive evening star signals are negated, a bull rally usually follows... let's wait and see if it is true again this time. This week's heavy weight release is the CPI numbers on Thursday (see economic calendar) and the Empire State Index on Friday. These numbers should decide whether the optimism continues.

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Thursday, August 07, 2008

Evening Star On The Dow Once Again...

The Dow collasped on a slight rebound in oil price and jobless claims running up to 6 years high today, forming yet another evening star formation. This evening star formation is reinforced by a negative divergence on stochastics, making it a slightly stronger evening star than the one formed last week. However, this is again no guarantee that the Dow is going down into new lows as the signal needs to be confirmed over the next few days. If the Dow closes below its immediate short term support level of 11150, the evening star signal would be confirmed. If the Dow reverses its course strongly tomorrow, it could negate the evening star signal and breakout.

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Wednesday, August 06, 2008

Bulls Holding Ground...

The Dow gained marginally by just over 40 points as oil continues its march back down towards the $110 mark. The persistent decline in oil price has also encouraged investors to move back from bonds into equities as Bond Yield curve (see bond yield curve) rises across the board once again. Rising bond yield is a result of lower bond prices caused by a sell off in bonds. Even though the advance today isn't strong enough in both magnitude and volume to confirm a breakout, it sure does suggest that the bulls are building up and holding ground.

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Tuesday, August 05, 2008

Fed Rally!

The Dow rocketed upwards by more than 300 points today as the Fed decides to keep rates steady. Adding to the optimism was oil continuing its way to the abyss.

This is obviously the outcome investors are looking for, putting neither the economy nor the dollar into further danger for now as they sit by and watch the economy pick itself up. The real question now is a technical one. The Dow is once again at its 11600 resistance level. This is a strong resistance level which the Dow has made 2 previous attempts to break in vain. Tomorrow would be critical. If the Dow follows up with a strong resistance level breakout, we could see a reversal into an intermediate bull trend. Lets watch and see.

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Monday, August 04, 2008


Yes, its FOMC day again tomorrow, what can we say? :)

The market behaved as it should behave before every such release; uncertainty with a little skepticism, ending in a largely bearish inclined sideways day. No matter how you look at it, FOMC does change some things in the stock market. With the Dow sideways for nearly a month now, it could be the catalyst needed for the stock market to choose where it wants to go at last. One thing is for sure, investors seem to be comfortable with where oil is at and heading right now so much so that huge drops in oil price doesn't really affect stock market sentiments anymore. Well, that's investment psychology; only factors of immediate concern push investors to action. With oil this tame for this long, its easy for investors to no longer think about it too much. So, is this a good time for the Fed to RAISE RATES and rescue the dollar or is the government already planning on a new combined currency? There's no way to know for sure but I would expect forex, currency swaps and forwards to go into the history books in the long term future as globalization would no doubt eventually result in a single global currency. For now, the Dow remains neutral with a bearish inclination.

Back from Qi Gong Training...

Hi all, I under went qi gong training by a Beijing Master the past few days, making some of you think I am in "despair" and "quitted writing". Of course not! :) No market condition can drive me from the market and this is the difference between a professional like us and amateurs. As professionals, we are part of this market no matter good or bad. :)